A price escalation clause permits price changes when defined cost drivers or events move beyond agreed conditions. It should specify the formula, evidence, timing and any cap or threshold.
The operating decision
Name the index or cost element, base date, review frequency, lag, currency, sharing rule and treatment of decreases.
What to keep
Keep baseline values, published index or supplier evidence, calculation, notice, approval and effective transactions.
| Area | What the record should show |
|---|---|
| Control | Name the index or cost element, base date, review frequency, lag, currency, sharing rule and treatment of decreases. |
| Evidence | Keep baseline values, published index or supplier evidence, calculation, notice, approval and effective transactions. |
| Tradeoff | A clause that addresses increases but not decreases creates one-way exposure. Symmetry should be an explicit negotiation point. |
A practical limitation
A clause that addresses increases but not decreases creates one-way exposure. Symmetry should be an explicit negotiation point.
Related definitions: supplier qualification, strategic sourcing, landed cost.
